Did you know that your FICO score constantly changes? If you’re not monitoring your score you may not even be aware of this. But it’s true. Your FICO score is like a bouncing ball that can go up or down very rapidly.
It’s because of your credit report
The simple answer to why your FICO score changes constantly is because the credit reports that are used to calculate your FICO score are always changing. This could be only a small change but would stil cause your FICO score to go up or down.
How FICO scores are generated
While you may think you have a FICO score that’s just sitting there waiting for someone to request it, that’s not actually how things work. FICO generates a new credit score for you every time someone requests it. This is to make sure that the potential creditor gets the most up-to-date credit score possible. Your score is based on credit reports from the three credit reporting bureaus – Experian, Equifax and TransUnion. Your lenders frequently provide new information such as credit inquiries, new balances and recent payments. FICO then calculates your score based on this most recent information.
Why your credit report changes
Of course, if you were to apply for a new credit card or fail to make a car payment, your credit reports would change. However, there are other reasons why they would change. For example, whenever you make a payment on your mortgage, this reduces your overall amount of debt. Since this is one of the factors that is used in calculating your credit score, this would bump it up. Your FICO score also takes into account your “credit utilization.” This is a ratio that reflects the difference between the total amount of credit you have available and the amount you’ve used. If the balance on one of your credit card changes, this affects your utilization rate. If you were to use 75% of your credit limit one month, this could pull down your score. If, the next month you charge only 20% of your limit, that would boost your credit score.
About 20 points
Approximately 25% of us will see our credit scores go up or down by more than 20 points versus the previous three months. Higher credit scores usually stay more stable over time while lower credit scores tend to vacillate more – mostly moving lower.
Are you monitoring your credit score?
As you can see, there is a good reason to monitor your credit score on a fairly regular basis. Your credit score basically rules your credit life. If you apply for a new credit card, an auto loan, a mortgage or a personal line of credit, the first thing the lender will do is check your credit score. If you have a credit score of less than 580, you could be turned down. Conversely, if you have a credit score of 750 or above, you’re “golden” and should be able to get any credit that you apply for.
Where to get your FICO score
The best place to get your FICO score is at the source – www.myfico.com – as these are the people who create your score. You can get your score free if you sign up for a free 10-day trial of the company’s Score Watch program. But you might want to cancel this trial subscription before the 10 days expire or you’ll be automatically charged for three months’ worth of the service.
There’s a new credit scoring model
The three credit bureaus together have created their own credit score called VantageScore. While it is not your true FICO score, it is gaining in popularity with lenders. In fact, six of the top 10 credit card companies and four of the top auto loan and mortgage providers are now using VantageScore. Plus, it’s said that VantageScore uses a new credit scoring model that could actually boost your credit score.